1H17 core PATAMI of RM320m came in within expectation, mainly underpinned by higher e-commerce and adex revenues. A second interim single-tier dividend of 3.0 sen was announced. In view of the cautious consumer spending trend, ASTRO has turned more cautious on its outlook for FY17. Post-results, we reduced our FY17E/FY18E core PATAMI marginally by 0.4%/0.2% after fine-tuning, but keeping our DCF-derived target price unchanged at RM3.02. Our rating on ASTRO, however, is lowered to MARKET PERFORM (from OUTPERFORM previously) in view of the limited upside from here.

Within expectation. 1H17 core PATAMI of RM320m (2% YoY) came in within expectations at 50.7%/48.9% of our/consensus full-year estimates, thanks to better performance in e-commerce and adex. Note that, the normalised PATAMI excluded post-tax impact of unrealised forex gain of RM7m due to revaluation of M3B transponder lease liability. As expected, a second interim single-tier dividend of 3.0 sen was declared (ex-date: 28-Sept), bringing the YTD DPS to 6.0 sen (vs. 5.5 sen a year ago). For the full-financial year, we expect the group to pay a total DPS of 12.8 sen, representing a dividend pay-out ratio of 105% and dividend yield of 4.3%.

YoY, 1H17 revenue grew 3%, driven by the Radio (+11%) and Home Shopping (+87%) segments. The former was mainly driven by the effective yield and inventory management while the latter was boosted by increased numbers of products sold as well as launching of the Chinese channel in October 2015. TV segment turnover, meanwhile, was flat in 1H17 as the increase in advertising and other revenue was offset by lower subscription revenue. EBIT, meanwhile, dipped 3% due to higher content costs as a result of major sport events, and administrative expenses. PATAMI surged 7% due mainly to lesser D&A expenses and lower net finance cost. Stripping off the unrealised forex gain, the group's core PATAMI improved by 2% to RM320m.

QoQ, 2Q17 revenue up by 5% mainly due to higher subscription, advertising and home-shopping revenues. The better subscription revenue was led by an increase in ARPU of RM0.20 to RM99.20 despite its Pay-TV subscribers lower by 11k to 3.5m. Group’s EBITDA margin, meanwhile, dipped by 510bps to 29.9% due to higher content costs, particularly EURO 2016 and impact of weakening RM, offset against discounts received from renegotiated content contracts. The EURO and Olympic 2016 events have raised ASTRO’s content costs by c.RM100m.

Outlook. ASTRO has adopted a more guarded view (vs. earlier fairly optimistic view provided in the previous quarter) in view of the cautious consumer spending. The group has lowered some of its FY17 earnings guidance where ASTRO is targeting; (i) 3-4% top line growth (vs. mid-single digit target previously), (ii) low RM300m home-shopping business revenue (vs. RM350m), and (ii) lower ARPU of RM99-RM100 (vs. RM101). Nevertheless, ASTRO is still keeping its target of achieving EBITDA/PATAMI of c.RM1.8b (31%-32% margin)/low RM600m, respectively. Moving forward, management expects its EBITDA margin to improve to 33%-34% in FY18 in view of the absence of major sport events. All in, we concurred with management view and believe consumers are likely to adopt a cautious mode on spending ahead.

Post-results, we have lowered our FY17/18E core PATAMI marginally by 0.4/0.2%, after fine-tuning. We are keeping our DCF-derived target price unchanged at RM3.02, based on a 10-year explicit DCF valuation with the following assumptions; (i) WACC: 9.0%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%.

Source: Kenanga Research - 15 Sep 2016